607 / 2024-04-27 01:57:26

When Should Sellers Offer Rebates for Consumer Reviews

Social learning,Rebate,game theory,Consumer review

To best explore the benefit of consumer reviews, sellers in practice often use rebates to induce consumers to share reviews actively. There are generally two rebate provision timings: broad format and targeted format, depending on whether the seller provides review-based rebates to all potential consumers upfront or only to consumers who have brought product but have not commented yet; and two rebate types: conditional rebate and unconditional rebate, depending on whether the seller imposes requirements on review contents for consumers to redeem rebate. This paper seeks to provide a full picture for seller’s optimal rebate provision strategy with new product promotion. We show that broad rebate provision can effectively enhance early-arriving consumers’ purchasing incentives but also incurs a waste of spending on rebate to those active consumers who are keen on sharing reviews. While targeted rebate provision cannot enhance consumers’ purchasing utility, it is more effective at inducing reviews from those consumers who are inherently hesitate at sharing reviews. Compared to unconditional rebate, conditional rebate can improve the quality of reviews that helps consumers better observe quality information, but also reduces consumers’ incentive to redeem rebates. In equilibrium, the seller provides rebates only if market contains limited consumers that like to share reviews. With unconditional rebate, the seller always processes a higher incentive to provide rebate under broad format than under targeted format. With conditional rebate, the seller maybe more active at rebate provision under targeted format when it becomes more costly for consumers to write high quality reviews.